I have been eyeing this stock for quite a while but couldn’t pull the trigger to buy it due to its high valuations. It had been trading around 46-49 PE during the period that I was eyeing it. This quarter, the company released earnings and because same store sales missed estimates, the stock price proceeded to tank by about 8% within 2 straight days.
I don’t understand. The earnings still managed to grow year on year by 47% and free cash flow was up 35%, yet the market punishes the stock because it missed estimates. For the sake of new readers who have never been to this blog, this is how I feel about earnings missing estimates. The management also warned that sales growth in existing stores would slow down, which is natural in my opinion, considering that whenever you open a new store, you will probably max out the clientele in that geographical location after a period of time.
This company has a formidable culture and branding. It is taking on a big goal to change the way we eat. It wants to educate the world about eating healthy, organic food. Sounds pretty hippy, ain’t it? But management put their money where their mouths are, and the company underwent a makeover many years back by partnering with organic farmers. Instead of adopting a cut-throat corporate culture, it has adopted the model of conscious capitalism, by making sure that their suppliers and staff are paid above market rate, so as to squeeze the best product, service and performance out of them.
They are leaders in the fast casual restaurant industry and they are anti-thesis of fast food companies like McDonalds, KFC and Burger King. This company has also been the stock market darling for the past 7 years so naturally investors are getting panicky about whether it will lose steam.
Since it’s sales are slowing, won’t it’s growth slow? Due to their CEO’s stringent, obsession over quality of ingredients, they are also currently missing out key ingredients on their menu as they have not found a suitable supplier that meets management standards yet. Won’t this affect the demands of their customers? Also, it has been a 10 bagger in the last few years, why are you getting in on it now? Aren’t you worried about entering at the peak?
The markets have also been on a bull run for so many years and the so many nations are printing money! Greece is also exiting the euro! Aren’t you worried of a correction?!?!?
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Keep Calm and Invest on, dear Readers.